IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/31255.html
   My bibliography  Save this paper

Size and The City: Productivity, Match Quality and Wage Inequality

Author

Listed:
  • Yip, Chi Man

Abstract

This paper elucidates the impact of city growth on wage and wage inequality using a search-theoretical approach. Firms differ in capital intensity and land intensity of the jobs created. When a worker meets a job via a matching technology, a match-specific productivity level is realized and they sign a job contract when they agree with the bargaining wage. A rise in population density leads to rental increment. As a consequence, a higher expected flow profit is required for the creation of a good job. Rent-sharing ensures an increase of the average wage in the good-job sector. This, in turn, increases the reservation wage of workers in the equilibrium. Although the rental increment does not affect the setup costs in the bad-job sector, higher realized productivity level is required to cover higher reservation wage. Since only job contacts with realized productivity levels exceeding reservation productivity threshold are observed, such increase in the threshold raises also the average wage in the bad-job sector. Hence, the average productivity, the match quality and wage go up in each sector unambiguously, giving rise to urban wage premium. In addition, this paper predicts that urbanization widens residual wage inequality of a city. Existing empirical evidence is presented to support the implications of this model.

Suggested Citation

  • Yip, Chi Man, 2011. "Size and The City: Productivity, Match Quality and Wage Inequality," MPRA Paper 31255, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:31255
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/31255/1/MPRA_paper_31255.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Gautier, Pieter A. & Zenou, Yves, 2010. "Car ownership and the labor market of ethnic minorities," Journal of Urban Economics, Elsevier, vol. 67(3), pages 392-403, May.
    2. Saiz, Albert, 2007. "Immigration and housing rents in American cities," Journal of Urban Economics, Elsevier, vol. 61(2), pages 345-371, March.
    3. Nathaniel Baum-Snow & Ronni Pavan, 2013. "Inequality and City Size," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1535-1548, December.
    4. Wasmer, Etienne & Zenou, Yves, 2002. "Does City Structure Affect Job Search and Welfare?," Journal of Urban Economics, Elsevier, vol. 51(3), pages 515-541, May.
    5. Winters, John V., 2009. "Wages and prices: Are workers fully compensated for cost of living differences?," Regional Science and Urban Economics, Elsevier, vol. 39(5), pages 632-643, September.
    6. Glaeser, Edward L., 1999. "Learning in Cities," Journal of Urban Economics, Elsevier, vol. 46(2), pages 254-277, September.
    7. Borjas, George J. & Bronars, Stephen G. & Trejo, Stephen J., 1992. "Self-selection and internal migration in the United States," Journal of Urban Economics, Elsevier, vol. 32(2), pages 159-185, September.
    8. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
    9. Yankow, Jeffrey J., 2006. "Why do cities pay more? An empirical examination of some competing theories of the urban wage premium," Journal of Urban Economics, Elsevier, vol. 60(2), pages 139-161, September.
    10. Anthony J. Venables, 2011. "Productivity in cities: self-selection and sorting," Journal of Economic Geography, Oxford University Press, vol. 11(2), pages 241-251, March.
    11. Barbara Petrongolo & Christopher Pissarides, 2006. "Scale Effects in Markets with Search," Economic Journal, Royal Economic Society, vol. 116(508), pages 21-44, January.
    12. Andersson, Fredrik & Burgess, Simon & Lane, Julia I., 2007. "Cities, matching and the productivity gains of agglomeration," Journal of Urban Economics, Elsevier, vol. 61(1), pages 112-128, January.
    13. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, vol. 86(1), pages 54-70, March.
    14. Détang-Dessendre, Cécile & Gaigné, Carl, 2009. "Unemployment duration, city size, and the tightness of the labor market," Regional Science and Urban Economics, Elsevier, vol. 39(3), pages 266-276, May.
    15. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent, 2008. "Spatial wage disparities: Sorting matters!," Journal of Urban Economics, Elsevier, vol. 63(2), pages 723-742, March.
    16. Rauch James E., 1993. "Productivity Gains from Geographic Concentration of Human Capital: Evidence from the Cities," Journal of Urban Economics, Elsevier, vol. 34(3), pages 380-400, November.
    17. Glaeser, Edward L & Mare, David C, 2001. "Cities and Skills," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 316-342, April.
    18. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2010. "Inequality and Unemployment in a Global Economy," Econometrica, Econometric Society, vol. 78(4), pages 1239-1283, July.
    19. Barron, John M, 1975. "Search in the Labor Market and the Duration of Unemployment: Some Empirical Evidence," American Economic Review, American Economic Association, vol. 65(5), pages 934-942, December.
    20. Kim, Sunwoong, 1991. "Heterogeneity of labor markets and city size in an open spatial economy," Regional Science and Urban Economics, Elsevier, vol. 21(1), pages 109-126, May.
    21. Zenou, Yves, 2009. "Search in cities," European Economic Review, Elsevier, vol. 53(6), pages 607-624, August.
    22. Zephyr, 2010. "The city," City, Taylor & Francis Journals, vol. 14(1-2), pages 154-155, February.
    23. Gautier, P.A. & Teulings, C.N., 2009. "Search and the city," Regional Science and Urban Economics, Elsevier, vol. 39(3), pages 251-265, May.
    24. Sato, Yasuhiro, 2001. "Labor Heterogeneity in an Urban Labor Market," Journal of Urban Economics, Elsevier, vol. 50(2), pages 313-337, September.
    25. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January.
    26. Bacolod, Marigee & Blum, Bernardo S. & Strange, William C., 2009. "Skills in the city," Journal of Urban Economics, Elsevier, vol. 65(2), pages 136-153, March.
    27. Martin Korpi, 2008. "Does size of local labour markets affect wage inequality? a rank-size rule of income distribution," Journal of Economic Geography, Oxford University Press, vol. 8(2), pages 211-237, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Combes, Pierre-Philippe & Gobillon, Laurent, 2015. "The Empirics of Agglomeration Economies," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 247-348, Elsevier.
    2. Paul Verstraten & Gerard Verweij & Peter Zwaneveld, 2018. "Why do wages grow faster in urban areas? Sorting of high potentials matters," CPB Discussion Paper 377.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Paul Verstraten & Gerard Verweij & Peter Zwaneveld, 2018. "Why do wages grow faster in urban areas? Sorting of high potentials matters," CPB Discussion Paper 377, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Galster, George C. & Osland, Liv, 2024. "Educational and gender heterogeneity of the rural-urban earnings premium: New evidence from Norway," Regional Science and Urban Economics, Elsevier, vol. 105(C).
    5. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent & Roux, Sébastien, 2012. "Sorting and local wage and skill distributions in France," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 913-930.
    6. Niebuhr, Annekatrin, 2016. "Benefits of dense labour markets - Evidence from transitions to employment in Germany," VfS Annual Conference 2016 (Augsburg): Demographic Change 145715, Verein für Socialpolitik / German Economic Association.
    7. K. Bruce Newbold & W. Mark Brown, 2012. "Testing and Extending the Escalator Hypothesis: Does the Pattern of Post-migration Income Gains in Toronto Suggest Productivity and/or Learning Effects?," Urban Studies, Urban Studies Journal Limited, vol. 49(15), pages 3447-3465, November.
    8. Jordy Meekes & Wolter H. J. Hassink, 2023. "Endogenous local labour markets, regional aggregation and agglomeration economies," Regional Studies, Taylor & Francis Journals, vol. 57(1), pages 13-25, January.
    9. Cui Zhang, 2016. "Agglomeration of knowledge intensive business services and urban productivity," Papers in Regional Science, Wiley Blackwell, vol. 95(4), pages 801-818, November.
    10. Martin Andersson & Johan Klaesson & Johan P Larsson, 2014. "The sources of the urban wage premium by worker skills: Spatial sorting or agglomeration economies?," Papers in Regional Science, Wiley Blackwell, vol. 93(4), pages 727-747, November.
    11. Torfs, Wouter & Zhao, Liqiu, 2015. "Everybody needs good neighbors? Labor mobility costs, cities and matching," Regional Science and Urban Economics, Elsevier, vol. 55(C), pages 39-54.
    12. Marianna Belloc & Paolo Naticchioni & Claudia Vittori, 2023. "Urban wage premia, cost of living, and collective bargaining," Journal of Economic Geography, Oxford University Press, vol. 23(1), pages 25-50.
    13. John V. Winters, 2013. "Human capital externalities and employment differences across metropolitan areas of the USA," Journal of Economic Geography, Oxford University Press, vol. 13(5), pages 799-822, September.
    14. Elvery, Joel A., 2010. "City size and skill intensity," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 367-379, November.
    15. Jeffrey Yankow, 2009. "Some Empirical Evidence of the Efficacy of Job Matching in Urban Labor Markets," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 15(2), pages 233-244, May.
    16. Cem Ozguzel, 2019. "Essays on migration and productivity [Essais sur les migrations et la productivité]," PSE-Ecole d'économie de Paris (Postprint) tel-03381203, HAL.
    17. Matthias Wrede, 2013. "Heterogeneous skills and homogeneous land: segmentation and agglomeration," Journal of Economic Geography, Oxford University Press, vol. 13(5), pages 767-798, September.
    18. De la Roca, Jorge, 2017. "Selection in initial and return migration: Evidence from moves across Spanish cities," Journal of Urban Economics, Elsevier, vol. 100(C), pages 33-53.
    19. Yankow, Jeffrey J., 2006. "Why do cities pay more? An empirical examination of some competing theories of the urban wage premium," Journal of Urban Economics, Elsevier, vol. 60(2), pages 139-161, September.
    20. Perl, Maximilian, 2023. "Agglomerations, tasks and wage growth," Ruhr Economic Papers 999, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

    More about this item

    Keywords

    Urban Wage Premium; Match Quality; Job Match;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:31255. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.